Seth Klarman's Baupost Group Discloses New Positions (13F Filing Q4 2009) ~ market folly

Saturday, February 13, 2010

Seth Klarman's Baupost Group Discloses New Positions (13F Filing Q4 2009)

This is the fourth quarter 2009 edition of our hedge fund portfolio tracking series. Before beginning, check out our series preface on hedge fund 13F filings.

Fittingly, we'll begin our coverage of fourth quarter holdings with arguably the most successful and respected modern hedge fund manager, Seth Klarman and Baupost Group. Klarman received his MBA from Harvard Business School and went to work for Baupost when he was 25. The rest is history as he has been one of the most successful investors of our time in terms of performance. Prior to this portfolio update, we had already covered Baupost's sale of RHI Entertainment (RHIE) and reduction in their Syneron Medical position (ELOS).

The positions listed below were Baupost's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers and all holdings are common stock unless otherwise denoted.

New Positions (Brand new stakes they initiated last quarter):
CIT Group (CIT)
DirecTV (DTV)
Liberty Media (LSTZA)

Increased Positions (Positions they already owned but added shares to):
Enzon Pharmaceuticals (ENZN): Increased by 290% ~ we covered the addition of this position before
Viasat (VSAT): Increased by 61.4%
Capitalsource (CSE): Increased by 15.4%
Theravance (THRX): Increased by 11.8%

Reduced Positions (Stakes they still own but sold shares in):
Sapphire Industrials (FYR.UN): Reduced by 63.7%
Syneron Medical (ELOS): Reduced by 28.4%
Domtar (UFS): Reduced by 10.3%
Capitalsource (SDCV 4% 7/1 Notes): Reduced by 2.9%
News Corp (NWSA): Reduced by 0.6%

Removed Positions (Positions they sold out of completely):
BPW Acquisition Corp (BPW)
Enterprise Acquisition Corp (EST)
Global Consumer Acquisition (GHC)
Liberty Media (LMDIA)
Prospect Acquisition Corp (PAX.UN)
RHI Entertainment (RHIE) ~ we detailed this right after it happened
SP Acquisition (inactive)
TM Entertainment & Media
Tremisis Energy (TGY.UN)
Overture Acquisition (NLX)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. News Corp (NWSA): 21.1%
  2. Domtar (UFS): 10.1%
  3. Viasat (VSAT): 9.86%
  4. Capitalsource (Convertibles 4% 7/1): 9.7%
  5. Theravance (THRX): 8.33%
  6. Breitburn Energy Partners (BBEP): 5.68%
  7. Enzon Pharmaceuticals (ENZN): 5.37%
  8. Capitalsource (CSE):5.08%
  9. CIT Group (CIT): 4.5%
  10. Facet Biotech (FACT): 3.88%
  11. DirecTV (DTV): 3.4%
  12. Capitalsource (Note 7.25% 7/1): 2.75%
  13. Alliance One (AOI): 2.71%
  14. Theravance (Note 3.0% 1/1): 2.06%
  15. Ituran Location & Control (ITRN): 1.39%

The main thing to takeaway from this filing is that this is only a small portion of Baupost's overall portfolio. They are currently in many distressed and more illiquid plays and we can't see them since they aren't required to disclose them publicly. Overall, the holdings listed above represent just over $1.5 billion in investments while Baupost manages a much larger asset base and also typically keeps a high amount of cash handy. Please note that in past Baupost updates we had combined all their Capitalsource exposure into one aggregate figure. This time we've instead separated it out by asset class as they own equity, notes, and convertibles.

Baupost's new equity acquisitions include CIT Group (CIT), DirecTV (DTV), and Liberty Media (LSTZA). Keep in mind though, that their stakes in DTV and LSTZA were actually a result of a Liberty Media transaction as Baupost owned the prior entity. Not to mention, while they show a new position in CIT Group, it was most likely a result of a debt to equity conversion, but there's no way to tell for sure. Additionally, they added to existing positions in Viasat and Enzon Pharmaceuticals. They sold completely out of a plethora of acquisition companies and notably reduced their stake in Sapphire Industrials. That really wraps up the majority of their activity.
In terms of other recent movements, we previously learned they will be buying more Facet Biotech (FACT) and rejecting Biogen Idec's takeover offer. For past resources on Klarman and Baupost Group, check out Klarman's interview from the annual Graham & Dodd breakfast, as well as some of his past investment insight, Baupost is one of the select few funds we have included in our Market Folly hedge fund portfolio replicator that has backtested 25% annualized returns. Head over to Alphaclone to see the hedge fund portfolio replication in action.

Assets from the holdings reported in the SEC 13F filing were $1.58 billion this quarter compared to $1.35 billion last quarter. Please keep in mind that when we reference percentage of portfolio, we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), these percentages are undoubtedly different than in their actual hedge fund.

This is just one of the 40+ prominent funds that we'll be covering in our fourth quarter 2009 hedge fund portfolio tracking series, so check back daily.

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